Thursday Outlook: Commodities, Emerging Markets

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Capitulation? It feels like that’s happening and we may experience a sharp waterfall like collapse if investors decide to throw in the towel. There’s no certainty of that or anything.

Many people have been discussing a so-called Black Swan event. This is taken from the English who felt there were only white swans until confronted by black swans in Australia. At least this is my understanding. The event has been expanded to current market conditions whereby the financial media, regulators and market participants believed that what we’re experiencing now would never happen. But it has, hence the Black Swan belief as all are blind-sided. However, there were many ignored voices of dissent who argued strongly that these conditions would occur once the housing bubble was unwound. Then, they argued, this house of cards would collapse. And, so it has.

With so many investors in shock, they search for a reason and have turned to the Black Swan event as the reason. They didn’t know this would happen. No one told them. They chose not to listen to the message from the charts and stuck to their plans. Hopefully people will learn but I doubt it.

Now all want to know what to do. For us, we’re in cash and most of our subscribers at ETF Digest are anxious to “do something.” Patience and risk management is more critical now than at any other time. Our time to invest will come. Perhaps we’ll miss a big waterfall event as short sellers. Or, we’ll be late to the next upside. But new tools like leveraged long or short ETFs allow us now to make up ground fast should we be late. That’s fine with me.

Have a pleasant day.

Disclaimer: The ETF Digest is long FXY.

Comments

[moonbat1775:]

Musical chairs, musical chairs,
when the music stops playing
they all turn to bears.

2008 Oct 23 06:08 AM

[sheople:]

Manufacturing was moved overseas. Interest rates were lowered. Our economy was largely based on what we spend. What do we expect when we run out of money? Let's not do anything to fix the problem. Let's "throw money out of helicopters". That'll help. What do we do when we get to the bottom of the hill? There's no ski lift.

2008 Oct 23 08:16 AM

[Trader T:]

Not a Black Swan event since this was a predictable and logical outcome of aggressive government intervention into the housing and financial markets. We will not recover until we get the arrogant and ignorant Congress out of the markets. I'm on the sidelines (CD's, bearish option plays) until I see less intervention by the government.

2008 Oct 23 08:19 AM

[investor88:]

David has written an insightful article, again. It is a pleasure to read because the charts convey the sentiment quite well, as in "a picture is worth a thousand words".

Whilst Warren Buffet and other like minded super gurus are saying "cash is trash", David is keeping his nose close to the ground by first preserving capital ie holding cash! Looks like Warren may have forgotten his own principle "Rule #1 do not lose capital and Rule #2 do not forget rule #1" if the waterfall precipitous market drop occurs.

Another important principle is that we don't always have to pre-empt and be early. Not too late to come in after any crash or rally as David has said.

2008 Oct 23 08:39 AM

[gilldig:]

Good advice in retrospect to being in cash. But now, to recover some losses in late exits, which Horizons Betapro bear x2 ETFs should be considered ? (any other choices ?)
Some have wide bid and asked quotes. Can they stop trading if price % rise or loss exceeds limits ? Any advice soon ?

2008 Oct 23 09:25 AM

[MeagerBeaver:]

"Investors want safety and cash" Safety - yes. But Cash? The Buck Canuck has dropped 30% in the last year. How safe is that? And yet somehow bullion keeps going down too. It looks like relative wealth is being adjusted globally, massively. The idea that today's production value can be transported forward decades of time is an illusion which a retirement age guy like me fully supports, but it appears the illusion is evaporating, sniff. Back to work.

2008 Oct 23 10:23 AM

[sieraromero:]

Give every american taxpayer 1 million dollars! this would cost the government around 350 million. Far, far cheaper than any current bailout packages that are being discussed. This would greatly stimulate the economy while at the same time eliminate all of the bad debt that is on the books. Debt must be paid first. This would stimulate the middle class which could then afford health care and to send their kids to college. It would even the playing field of our economy. The dollar is going to wind up worthless anyway!

2008 Oct 23 10:23 AM

[jjc7477:]

Dear Sieraromero,

You forgot a few zeros there my friend. You just covered the first 350 Americans. What about the other 299,999,650?
However, if you'd like to make me one of the 350.......

2008 Oct 23 10:31 AM

[Smarty_Pants:]

Dear jjc7477,

You forgot that there are only 350 taxpayers left. Everyone else is on the dole.

Well, OK. Maybe that's not strictly true, but you get my drift.

2008 Oct 23 11:20 AM

[CrisisTheory:]

Gov. intervention caused this ?!

No wonder so many lost so much; this right-wing ideology has blinded them.

In the most deregulated, capital-friendly, banker & finance dominated economy in the history of the world, the system blows up and the problem must be................

too MUCH intervention !!

I'm sure thats just the lesson the Chinese are drawing right now

2008 Oct 23 11:22 AM

[Smarty_Pants:]

CrsisTheory,

Yes. Too much gub'mint intervention in banking, lending, insurance, housing, etc. etc.

Your assignment is to go read 'Human Action' by Ludwig Von Mises

www.amazon.com/Human-A...

Then write a book report explaining how gub'mint intervention(s) in the free market prevented risky business practices from putting a few banks out of business years ago and instead allowed the problem to grow into a systemic, 'end of the world' scenario where the entire financial system has ground to a halt world wide.

2008 Oct 23 11:32 AM

[SA Guest:]

Roubini Says `Panic' May Force Market Shutdown (Update2)

By Alexis Xydias and Camilla Hall

Oct. 23 (Bloomberg) -- Hundreds of hedge funds will fail and policy makers may need to shut financial markets for a week or more as the crisis forces investors to dump assets, New York University Professor Nouriel Roubini said.

``We've reached a situation of sheer panic,'' Roubini, who predicted the financial crisis in 2006, told a conference of hedge-fund managers in London today. ``There will be massive dumping of assets'' and ``hundreds of hedge funds are going to go bust,'' he said.

www.bloomberg.com/apps...

2008 Oct 23 12:06 PM

[Smarty_Pants:]

Paulson, Bernanke, and central bankers the world over have been in a state of 'sheer panic' for nearly a month now trying to maintain the facade of normalcy in the markets by hook or by crook.

What is finally happening is that the market is beginning to realize that is the case.

Naturally the gub'mint's reaction will be to change the rules yet again by closing the markets.

How long after that might they have to close the banks?

Hmmm ... can't buy or sell paper assets for a indeterminant time, maybe people will start wishing they had gold or silver in their hands?

Just a thought.

2008 Oct 23 12:16 PM

[Smarty_Pants:]

Good picture of Uncle Buck threatening to shave his neice's head if she doesn't go bowling with him.

Outstanding movie for those who haven't seen it.

"Uncle Buck" starring John Candy, MaCaulay Culkin, and Laurie Metcalf

www.imdb.com/title/tt0.../

2008 Oct 23 04:40 PM

[moonbat1775:]

I wonder if Warren Buffet could do it all over again in today's environment?

2008 Oct 23 04:52 PM

[User 258021:]

What are couple of good leveraged long ETFs?
Thanks.

2008 Oct 23 11:14 PM

[a believer:]

I'm 100% invested in dollars, I guess you could say I'm 'long $USD.'

I like that $USD chart.

User 258021, since no back-tested data set could include the price movements we've seen, trading leveraged long ETFs is way too risky in this non-trending environment (unless you are day-trading).

2008 Oct 25 10:57 AM